Digital song plays complicate licensing debate

A legal rift has developed, with ASCAP, BMI and music publishers pitted against digital platform Pandora in an argument as to whether federal rules should allow music publishers to decide to license only parts of their catalogs with ASCAP and BMI.
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Battle lines over the future of the music publishing industry were made clear this week when the Department of Justice published public comments that were offered in conjunction with a review of federal rules that govern the not-for-profit organizations ASCAP and BMI.

Those comments show stark disagreement between key stakeholders regarding how the rules that govern the operation of the two behemoth performance rights organizations should be updated.

Currently, professional songwriters sign contracts with publishing companies, who work to extract the full monetary value from a song. Songwriters and publishers register their songs with a performance rights organization, which tracks and distributes royalties when a song is played on traditional radio, in a bar or live at a concert.

The rules, known as consent decrees, dictate how royalty rates are calculated and how ASCAP and BMI can operate.

Publishing companies have argued that they have not been paid fairly when a song is played on digital services, like Pandora, and last year some of the major publishers withdrew their digital rights from ASCAP and BMI in order to negotiate private deals, with rates more favorable to them than the government-mandated rates used by ASCAP and BMI.

But a federal court ruled that the partial withdrawal of rights is not allowed by the consent decrees, and that publishers must enter all-or-nothing arrangements with ASCAP and BMI. That decision is being appealed in federal court, and is a central issue in the DOJ's review of the consent decrees.

In its public comments, ASCAP offered the same ominous warning from its appeal of the lower court's ruling in the Pandora case — if publishers are not granted the right to negotiate private digital licensing deals, then ASCAP's own viability will be in doubt.

And the comments also indicated that it may be music fans who bear the burden of an unchanged consent decree.

"Indeed, without changes to the consent decree, ASCAP may face the complete resignation of certain of its largest music publisher members, a result that could be as damaging for music users as it could be for ASCAP and its remaining members," ASCAP stated in its public comments. "Without a robust collective licensing system, the increased cost of having to negotiate licenses with hundreds of thousands of individual copyright owners would likely be passed on to consumers and stymie the growth of innovative new services that would benefit consumer choice and experience."

But Pandora painted a different picture in its public comments, arguing that if publishers are allowed to withdraw digital rights, it will lead to anticompetitive issues. Pandora argued that the consolidation of the music industry has left just a few companies, Sony and Universal, owning enormous song catalogs.

To that end, Pandora argues that if the DOJ changes the consent decrees to allow for partial rights withdrawal, it will be the music user who suffers.

"The publishers and PROs are frustrated by the extent to which the decrees fulfill their purpose," Pandora argued. "More to the point, the PROs and publishers are unhappy because the consent decrees prevent them from implementing a scheme that has the purpose (and would have the effect) of raising prices across the board without regard to competitive constraints."

But while the publishers and digital music giant differ on how to amend the decrees, Nashville Songwriters Association International painted a clear picture of what's at stake.

In comments submitted to the DOJ, Executive Director Bart Herbison said on behalf of NSAI: "Digital delivery models continue to evolve while more great American songwriters fall by the wayside. Nashville has lost (80 percent) or more of those who claimed songwriting as a full-time occupation since the year 2000. This startling statistic alone demands changes in an antiquated royalty system."

It's unclear what the DOJ's timetable will be for making changes to the consent decrees. ASCAP had its last consent decree review in 2001 and BMI had its last in the 1990s.